FEMA seizure confirmation and adjudication: unconfirmed seizure cannot sustain show cause proceedings until the statutory appeal is decided.

A show cause notice under FEMA based on seizure under Section 37A cannot stand where the competent authority has refused to confirm the seizure on the ground that the alleged contravention lacked a factual foundation. The Supreme Court held that Section 37A(4) applies only after confirmed seizure and does not permit adjudication to proceed on the footing of an unconfirmed seizure while a statutory appeal against that refusal remains pending. The impugned writ and adjudication orders were set aside, proceedings were restored to the show cause stage, and the appeal against the refusal to confirm seizure had to be decided first.

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Issues: (i) whether the absence of confirmation of seizure under Section 37A of FEMA, and the competent authority's rejection of the seizure, extinguished the foundation for the show cause notice and adjudication proceedings; (ii) whether the High Court and the Adjudicating Authority were justified in treating Section 37A(4) of FEMA as permitting adjudication to proceed without awaiting the departmental appeal against the competent authority's order.

Issue (i): whether the absence of confirmation of seizure under Section 37A of FEMA, and the competent authority's rejection of the seizure, extinguished the foundation for the show cause notice and adjudication proceedings.

Analysis: Section 37A creates a preventive mechanism based on a tentative seizure supported by a reason to believe, but the competent authority's scrutiny under sub-sections (2) and (3) is a substantive check on whether the material can sustain even a prima facie inference of contravention. The refusal to confirm seizure, on a finding that no foreign security of value was shown to have been held and that the suspicion had no foundation, materially supported the appellants' challenge. In these peculiar facts, the show cause notice was not immune from writ scrutiny, because a notice may be interdicted where there is patent lack of jurisdiction, non-application of mind, or abuse of process.

Conclusion: the foundation for the show cause notice could not be treated as unaffected by the competent authority's order, and the challenge to the notice was maintainable.

Issue (ii): whether the High Court and the Adjudicating Authority were justified in treating Section 37A(4) of FEMA as permitting adjudication to proceed without awaiting the departmental appeal against the competent authority's order.

Analysis: Section 37A(4) operates where seizure is confirmed and continues till disposal of adjudication proceedings; it does not govern a case where seizure was not confirmed. By treating the interim seizure as having decisive bearing on the final adjudication, and by relying on the High Court's observations despite the pending statutory appeal against the competent authority's order, the adjudicating process effectively foreclosed the appellate remedy and ignored the legal effect of the un-reversed refusal to confirm seizure. The resulting adjudication was held to be contrary to law.

Conclusion: the High Court's dismissal of the writ challenges and the adjudicating authority's order could not stand, and the departmental appeal against the competent authority's order had to be decided first.

Final Conclusion: the impugned orders were set aside, the proceedings were revived from the stage of the show cause notice, and the departmental appeal against the competent authority's order was directed to be decided first before the show cause proceedings were carried forward.

Ratio Decidendi: a show cause notice and consequential adjudication under FEMA cannot be sustained on a footing inconsistent with a competent authority's un-reversed refusal to confirm seizure, and a statutory appeal against that refusal must be decided before the adjudication proceeds further where the later proceedings depend on the same foundational facts.

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